Tong, a and former chairman of Big Four accounting firm KPMG who now heads the city's securities watchdog, said he is concerned about the possible impact of the rules as they would limit Hong Kong accountants from working on the mainland.

We would like the ministry to clarify if all audit papers are a state secret

CARLSON TONG, SFC CHAIRMAN

The rules require international accounting firms to team up with one of the 100-odd mainland accounting firms to perform audits on Chinese companies. They also prohibit international accounting firms from sending their staff to the mainland under temporary licences, spelling doom for Hong Kong accountants. Global accounting firms are likely to scale down their hiring in the city but increase mainland hiring as a result.

Tong yesterday told the South China Morning Post that SFC executives and other government officials would meet Ministry of Finance officials while they are in Hong Kong for their regular visit this week.

"The new rules would have big implications for Hong Kong's accounting sector and we would like to clarify how it's going to work," he said.

According to international auditing norms, Hong Kong accountants need to have access to mainland auditors' work before they can sign off on a financial statement, Tong said. This is why he would like to clarify how cross-border collaborations and partnerships in the future would be affected if the new rules kick in.

Tong said SFC executives would also like to discuss the "state secret" issue as the proposed rule appears to bar overseas accountants from taking audit papers out of the mainland. "We would like the ministry to clarify if all audit papers are a state secret or if it only applies to papers that contain state secrets," he said.

The SFC last month won a court battle against Ernst & Young, with the court ruling the audit firm could not use state secrets as an excuse for not handing audit papers to the city regulator for investigation.

Tong said the SFC is also working with the China Regulatory Securities Commission to improve cross-border regulation on insider dealing, market manipulation and other malpractices to prepare for the stock through train scheme that would allow Hong Kong and mainland investors to cross-trade stocks from October.

Some lawmakers worry the scheme could invite cross-border malpractice as the SFC has no authority on the mainland.